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Sterling hit by weak manufacturing

Sterling hit by weak manufacturing

UK Manufacturing figures for May fell off at their fastest pace since January. Factory output fell by 0.8% month-on-month, significantly worse than expected. The weakness in manufacturing was fairly broad-based with the main downward contributions coming from pharmaceuticals and metals.

The UK trade balance in goods recorded a deficit of £8.5bn in May from a downwardly revised £8.4bn in the previous month. The total trade deficit for May was £2.4bn, slightly better than the £2.6bn market consensus, with exports to non-EU countries falling more than their EU counterparts. While the underlying trade data remains weak and in contrast to recent strong PMI surveys, the result may not be far from the BoE’s bearish tone made in last week’s policy statement.

In contrast, positive news from the Royal Institution of Chartered Surveyors reported UK house prices rose at their fastest pace in more than three years jumping to +21 in June from +5 in May. This was reported to be the best reading since January 2010 aided by the Funding for Lending Scheme initiative to boost bank lending.

Sterling lost over a cent against the US dollar after disappointing UK data with GBP/USD reaching a low of $1.4812. The euro came under pressure following the downgrade of Italy’s long term sovereign credit rating by S&P to BBB (from BBB+) keeping the outlook negative. This helped push EUR/USD below the $1.28 level to a two month low of $1.2754.

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